2200: Financial Statement Accounts Flashcards
Under IFRS, how is inventory carrying value calculated?
Lower of cost and net realizable value, applied on an item-by-item basis
Simpler than US GAAP LCM
How do you calculate net realizable value?
Sale Price
less
Cost to Sell or Dispose
State and define the two methods of allocating capital interest when a new partner pays a premium to join the partnership. (Pays more than valued received.)
Bonus or Goodwill to Existing Partners
Bonus - allocate and credit premium among existing partners’ capital accounts (credit new partner capital account for less than debit for payment)
Goodwill - recognize and allocate goodwill by crediting existing partners’ capital accounts and debiting goodwill (credit new partner capital interest equal to debit for payment)
State and define the two methods of allocating capital interest when a new partner receives his interest at a discount. (Pays less than value received.)
Bonus or Goodwill to New Partner
Bonus - credit new partner for more than the debit for payment and debit the difference to existing partners’ capital accounts
Goodwill - credit new partner for more than debit for payment and debit the difference to goodwill
How do you determine Lower of Cost or Market in valuing inventory?
Choose the Lower of two: “Cost” or “Market”
1. Cost is Historical Cost
2. Market is Designated Market (DM), the mid value of 3:
Market 1 - Replacement Cost
Market 2 - (Ceiling) is Selling Price less Selling Expense = Net Realizable Value (NRV)
Market 3 - (Floor) NRV less Normal Profit (NP)
What disclosures are required regarding pension plans?
- Net prior service cost or credit in accumulated other comprehensive income
- Components of period pension costs
- Estimate of contributions to plan in the next fiscal year
What are the journal entries required to write off then collect on the previously written off account under the allowance method?
Write Off: Debit Allow. for UC A/R (dec), Credit A/R (dec.)
Reinstate: Debit A/R (inc), Credit Allow for UC A/R (inc)
Rec Pmt: Credit A/R (dec), Debit Cash (inc)
When is it appropriate to recognize revenue prior to the sale?
Only when production is the critical event and sales and cost of sales are reasonably certain. (Commodoties and percentage-of-completion for long term construction contracts)
In converting from cash basis to accrual, how are prepaid expenses and accrued liabilities accounted for?
Compared to beginning of the year, overall increase (decrease) in prepaid expenses should be subtracted (added) from current year expenses and increase (decrease) in accrued liabilities should be added (subtracted).
What is the A/R formula in respect to sales, collections, beginning a/r and ending a/r?
Beginning A/R + Sales - Collections* = Ending A/R
Beg A/R + Credit Sales - Collections - Accounts Written Off - Ending A/R
Estimated UC and Recoveries do not affect
*Reported as “Sales” under cash basis method
What types of gains and losses may occur pursuant to troubled debt restructuring?
ordinary gains/losses resulting from the difference between fair value and book value of the assets transferred to relieve the liability
extraordinary gains/losses resulting from the difference between fair value of the assests transferred and value of liability relieved
How is a stock option valued using the intrinsic method?
It is the excess of the market price over the exercise price.
(sh# x mkt pps) - (sh# x exercise pps)
How is the difference accounted for when the sale price exceeds the par value of common stock?
A credit to paid-in-captial
How is cost of goods sold calculated?
Beginning Inventory + Net Purchases (Purchases - Purchase Discounts + Freight In*) = Goods Available for Sale - Ending Inventory = Cost of Goods Sold
*Freight Out is not a COGS account
What formula accounts for pension plan asset changes throughout the year?
Beginning Plan Assets + Contributions + Gain (- Loss) on Plan Assets - Benefits Paid = Ending Plan Assets
What is the equation to calculate depletion per ton?
$ Purchase Price (Land) + Preparation Costs - Estimated Selling Price of Land after Mining / # Estimated total tons to be extracted
What is intraperiod income tax allocation and to which items does it apply?
It is the distribution of income tax expense for the period to various categories of income on the Income Statement (and occasionally items of direct adjustment to Retained Earnings) in addition to operations.
Other categories include: Discontinued Operations, Extraordinary Items, Cumulative Effect of Accounting Changes, Prior-Period Adjustments, and Direct Adjustments to Capital Accounts
How are small stock dividends defined and recorded by the issuer*?
*No JE for recipient
Issuance of additional shares representing less than 20-25% of shares outstanding.
DO Dec, Record @ fair value:
Debit RE
Credit Stock Div Distributable (at par value)
Credit PIC-Stock Div (for value in excess of par)
DO Pmt:
Debit Stock Div Distributable (at par value)
Credit Common Stock
How are large stock dividends defined and recorded by the issuer*?
No JE for recipient
Issuance of additional shares representing more than 20-25% of shares outstanding.
DO Dec, Record @ par value:
Debit RE
Credit Stock Div Distributable (at par value)
DO Pmt:
Debit Stock Div Distributable (at par value)
Credit Common Stock
How are partner capital balances calculated?
It is their net capital contribution (fair value less liabilities assumed) adjusted per goodwill or bonus method only when so defined in partnership agreement.
What is the formula for Effective Interest Rate
Carrying Value x Effective Interest Rate x Time Period = Interest Earned
How is stock with no par value but a stated value of $1 accounted for?
Par is stated valued.
It is valued at $1 (like $1 par) and excess of market value paid over $1 is Paid-in-Capital (like excess of par)
What amount is booked for a contingent liability estimable by a range?
GAAP - if no amount within the range is better than others, the low end of the range is booked
IFRS - best estimate is discounted to present value (not sure about range)
Are contingency gains recognizable by GAAP? IFRS?
GAAP - prohibited
IFRS - sometimes
What tax rate is used for interim income tax provision?
The effective tax rate expected to be applicable to the full year as of the date of the interim reporting.
What are the criteria to accrue employees’ compensated absences?
- Obligation attributable to services already rendered
- Rights accumulate
- Payment is probable
- Reasonably estimable
Fundamentals of Cost Method?
Record/Maintain investment at Cost
Earnings are Income in the form of Dividends
Own less than 50%
No significant influence
Use Fair Value Method instead for marketable securities.
Use LCM if marketable and other-than-temporary decline
When should an investor include investee in Consolidated Financial Statements?
Own > 50% (parent/sub relationship) or risks and rewards of ownership of company B are primary to company A
If Consolidated Statements, include sub (B) in statements
If no CS and influence then Equity Method, no influence Fair Value (if marketable securities)/Cost
Fundamentals of Equity Method?
Own 20 - 50% voting stock (c/s or p/s) or Significant Influence
Recognize dividends as return of investment in investee
Recognize share of net income/loss on c/s as investor income/loss and increase/decrease of investment in investee
Eliminate intercompany g/l
Amortize difference between cost and equity aside from goodwil in investors assets
Investment - B/S single amount
Share of NI - I/S single amount
Show classify share of special items as investee unless immaterial to investor
Investment increases to qualify - apply Eq M retro
Investment decreases to disqualify - apply Cost or LCM (marketable)
Allowed to elect Fair Value option:
Cost plus Percentage of Net Income* less Dividends = Investment Balance
+/- Fair Value Adjustment*
*Recognize Percentage of Net Income +/- Fair Value Adjustment only in Net Income
How is Book Value per Share of Common Stock Calculated?
Total SHE (P/S Par + C/S Par + APIC + RE) Less Preferred Value/CS Outstanding Preferred Value = Par or Callable Value + Liquidating Premium + Dividends in arears
Convert P/S to C/S
Preferred Stock DR (par)
APIC P/S DR (eliminate)
C/S CR (par)
APIC C/S (calculated)
What method of accounting is required by FASB in accounting for stock-based compensation plans?
Fair value method unless it cannot be estimated. Then Intrinsic Value where compensation cost is based on the measurement date, not the exercise date. (Excess of market @ m over exercise x # shares)
How are investments in debt and equity securities valued and reported?
Trading Securities at fair value w/ unrelaized g/l reported in operating income
Available for Sale Securities* - at fair value w/ unrealized holding g/l reported in OCI
Held to Maturity* (debt only) - amortize premium/discount
*Write-down and include in earnings (RE) an other than temporary impairment to an AFS or HTM
How is gain/loss on extinguishing debt by exchange for new debt calculated?
Net Carrying Amt of extinguised debt
(Face Amt + unamort premium/ - unamort discount less unamort issue costs)
Less Reacquistion Price (FMV of new debt including prem/disc)
Equals Gain/Loss (pretax)
How is employer payroll tax liability and expense calculated?
Liability = Employer FICA plus withholdings (Employee FICA and FIT w/h) Expense = Employer FICA only
What is the effect of failure to accrue future period insurance payment to cover current year inventory that is sold?
Understate accrued liabilities (A/P for insurance)
Understate expense in COGS
Overstate NI and RE
How are holding gains reflected in current cost financial statements?
Realized (i.e. COGS, difference between historical cost and current cost for assets sold or consumed)
Unrealized (i.e. inventory, difference between historical cost and current cost of assets still on hand)
Accounting for freight
Freight costs paid by the buyer are not in the inventory of the seller.
Freight in costs paid by buyer are part of inventory/COGS
Freight out costs paid by seller are a selling expense (after COGS)
What are permitted uses for assets of a rabbi trust?
Primary use is to provide funding for deferred compensation expenses of employer.
Assets must also be specifically available to satisfy claims of general creditors in the event of employer bankruptcy.
What are allowable methods for valuing inventory and cost of goods sold per US GAAP? IFRS?
US GAAP:
- LIFO
- FIFO
- average cost flow (WACO?)
IFRS:
FIFO and average cost allowed.
LIFO specifically disallowed.
Define Treasury Stock.
Previously issued and outstanding stock reacquired but not retired by an entity.
Describe the Cost Method in accounting for Treasury Stock
Single transaction concept (reacquistion and sale) Carried at cost pending sale Buy: TS DR (Cost) Cash CR
Sell:
Cash DR (sale price)
TS CR (@ prior reaq cost)
APIC DR CR (difference, max = balance APIC)
RE DR CR (difference remaining after APIC balance)
Describe the Par Value Method in accounting for Treasury Stock.
Two transactions concept (reacquistion and sale)
Reacquired as if retired - constructive retirement:
TS DR (par) APIC DR (excess of par, pro rata share of account based on original issuance cost or approximate)
RE DR difference (if difference exceeds original APIC) Cash CR (cost)
Sold as if previously unissued:
Cash DR
TS CR
APIC difference
Explain accounting for receipt of a stock dividends/splits.
Stock dividends/splits are not income to the investor. Take nothing from property of corporation. Add nothing to interests of stockholders. The only change is to the carrying value per share for the stockholder. No journal entry required for recipient.
Explain LIFO Reserve
LIFO Reserve is a contra inventory account. It is used when another inventory valuation method is used for internal reporting but LIFO is used for income tax reporting.
The LIFO reserve is an account carrying the requisite adjustment amount to decrease inventory value to LIFO with the increase to COGS. Higher COGS expense equates to lower taxes.
Adjust prior year LIFO reserve carrying value to equal current end of period difference between inventory value per books and per LIFO.
Cost of Goods Sold DR
LIFO Reserve CR
Explain Dollar Value LIFO
Approximates results of LIFO valuing layers in dollars instead of units. Requires a price-index and a base year in which DV LIFO was adopted.
